Weekly Update – is the Scottish block grant the largest or smallest it has ever been?

We’ve had a busy week here at the Fraser, digesting all of the announcements made by the Chancellor on Wednesday. Hopefully you’ve found our blogs and analysis useful, and there will be more analysis in the weeks to come, and as part of our next Quarterly Economic Commentary on 27^th March.

One of the first things we get asked about any fiscal event is, of course, what it means for Scotland. This week’s announcements saw £295m of Barnett consequentials coming to the Scottish Government, mostly generated from extra spending on the NHS in England.

These extra consequentials were heralded by some (i.e. the UK Government) as being part of a “record” block grant, which was “the biggest in the history of devolution”. At the same time, a number of outlets ran a story on Wednesday, quoting Pete Wishart, SNP MSP, which said that the Scottish block grant is the “lowest since devolution”. So, who is right?

It is not surprising that government spending of any kind is the highest ever

Firstly, we need to deal with the slightly irritating claim about the block grant being the highest in the history of devolution. This is a pretty meaningless claim, because inflation means that in cash terms this is almost always going to be true. Lots of politicians say stuff like this, including the Scottish Government (about the funding given to local government, or how much money they are spending on health).

Putting that aside – is it true?

Chart: Scottish Block Grant, Current Prices, £bn

Source: HMT PESA, Budget 2024, FAI Calcs

 

So, even if we exclude 2020-21, which was an exceptional year due to COVID-related funding, the 24-25 block grant is still not the biggest, as it is slightly smaller than the block grant for 2023-24. However, if we consider the resource (i.e. day to day spending) block grant only, it is the biggest ever (if we exclude 2020-21.

Much more meaningful, though, is to look at it in real terms, that is, to adjust the figures by inflation. If we do this, we see that the block grant in 2024-25 is one of the highest ever, and 10% higher than pre-COVID levels in 2019-20, but also that the block grant has fallen in real terms by 2.5% between 2023-24 and 2024-25.

So, in real terms, it is not a record block grant.

Chart: Scottish Block Grant, Constant Prices, £bn

Source: HMT PESA, Budget 2024, FAI Calcs

 

Another way to examine spending is to look at it as a proportion of all government spending

The media articles we referenced above (see here, here and here, for example) drew on analysis that had been provided to the MP Pete Wishart by the House of Commons library, which had looked at the Scottish Block Grant in nominal and real terms, and calculated the proportion of total spending that the Scottish Block Grant represents.

The picture below with the analysis was replicated in one of the articles. This analysis lead to the “lowest since devolution” claim.

Source: The National

We have two issues with this – one with the analysis itself and another with the interpretation of these figures.

Firstly, the analysis. In our view, it doesn’t really make sense to look at the Scottish Block Grant as a proportion of all government spending. That include elements of Annually Managed Expenditure, such as Social Security payments and debt interest payments, which fluctuate hugely year to year, but not due to government decisions in the main. It is also important to remember that this includes spending IN Scotland, such as the State Pension, Universal Credit etc.

Much more sensible would be to look at it as a proportion of Departmental spending, which is not as straightforward to source a consistent time series as total expenditure, but provides a comparison which is much more meaningful.

We’ve done this below – as you can see, the “lowest since devolution” line no longer holds.

Chart: Scottish Block Grant as % of Departmental Spending

Source: HMT PESA, Budget 2024, FAI Calcs

Secondly, the interpretation. The changes in the Scottish Block Grant are mechanically driven by the Barnett formula, so is driven by changes in spending on devolved services in England (or sometimes, England and Wales). The UK Government is not making decisions to spend less or more in Scotland – rather, they are making decisions about England (or England and Wales) which have a knock-on effect on the Scottish block grant.  It seems a stretch to say this is the UK Government “treating Scotland with contempt”.

Schrodinger’s block grant

So, the 2024-25 block grant is the biggest ever (if you look at just resource, don’t account for inflation, and exclude the COVID year) and is the smallest ever (if you divide it by an inappropriate denominator to get a share of total spending).

All of this analysis shows that sometimes, lots of seemingly incompatible claims can be true at once, depending on how you analyse and interpret the figures.

We’ll keep on trying to shed light on these claims and counterclaims.